Business tenants are often faced with this dilemma for the first time when the service charge on their commercial property suddenly rises.

To pay or not to pay that is the question.

Withholding payment of service charge is not to be taken lightly. Where service charge is “reserved as rent” then non-payment could result in the landlord taking one of the following nasty measures

• Instructing bailiffs

• Forfeiture of the lease

• Issuing proceedings

• Statutory demand

Each one of the above will likely result in costs being recovered via the lease from the Tenant and can result in the loss of the business premises or the business itself.

So what is my advice to a new client faced with an increased service charge?Well as always it depends on the specifics of the situation facing the tenant.

A tenants strategy for dealing with a large invoice and whether “to pay or not to pay” has to take into consideration not only what the landlord can do but also what the landlord is likely to do given the circumstances.

The course of action a landlord or their agent chooses to pursue will depend on a number of things not limited to the following:

1) Terms of the lease.

2) Age of debt.

3) Size of debt.

4) Landlord relationship with the tenant.

5) Strength of the tenant.

6) Landlord objectives or strategy for the particular premises.

7) Who the landlord is.

8) Landlord obligations to other parties.

9) The situation on the estate or in the area.

10) The specific circumstances surrounding the debt and their confidence in the validity of the charges.

Only after the above is analysed can a comprehensive and well thought out strategy be built and implemented for dealing with the issue.

Simply not paying without taking steps to protect yourself is never a good idea.

Posted by Jamie McNeil www.mcneilcommercial.co.uk on January 29 January 2012.

Business_property_service_charges.pdf

Have you ever wondered whether your business is paying too much service charge on your commercial property? If you are reading this article then perhaps you have thought about it but did not know what to do.

If you are a business owner or the financial director it is likely to be your responsibility to sign off the service charge payment to the landlord every three months. The buck also stops with you when the landlord issues a request for payment of a balancing service charge. If you have any concern about signing off a service charge invoice then shouldn’t you do something about it?

On the 1st of October 2011 The Royal Institution of Chartered Surveyors (RICS) issued a code of practice. Service charges in commercial property 2nd edition.

You can do download a copy and have a read I have posted a link at the bottom of this article. It has the status of a guidance note so does not override the terms on your lease. Another thing to do is to look closely at the terms of your lease to check the landlord is invoicing you in accordance with those terms.

This is where things become tricky. Unless you have a lot of experience in dealing with commercial property leases i.e. are a chartered surveyor or a lawyer specializing in commercial property then it is unlikely that you will be able to:

1) Interpret all of the applicable lease terms fully and accurately.
2) Establish how much of a case you have to legitimately challenge your landlord over individual costs contained within the service charge.
3) Form a strategy for challenging the landlord and execute it.

I am not saying that it is impossible for you to do this. It is just difficult and time consuming. Imagine for example a surveyor trying to do your job. He could muddle through part of it but he would certainly make mistakes some of which could be costly. Your time is quite frankly better spent on doing what you do best and not embarking on a new time consuming project in an area outside or your core expertise.

If you think that you want to have a go at taking this on yourself and want more information then read my article Service charges- Top Ten Tips for Tenants.

Alternatively you can just turn a blind eye and continue to pay the landlord whatever service charge he decides to invoice.

Useful resources:
http://www.mcneilcommercial.co.uk/property-service-charge--top-10-tips-for-tenants
http://www.servicechargecode.co.uk

by Jamie McNeil 5th January 2012

Well the first is for my benefit. This is to improve my health and so that I lose a bit of Xmas girth that I have grown. Go running 3 times a week.I hear you all laugh. He will never do it. Well I will post my results to this blog and you can see my progress and see if I can stick with it. I have a fancy heart rate monitor that allows me to post my results. If I manage to stick to this for only two months then what harm has been done?

The second is for the benefit of my business. Improve my time management. So I undertake to plan each evening for at least 15 minutes Monday to Friday my scheduled work and targets for the following day. Again a tall order I hear you say.

The third is for the benefit of my family. This is to improve my diet. That way I should live longer and therefore be able to continue to act as a taxi and source of presents at birthdays and Christmas. This could be really difficult but I am going to make it easy. Healthy cereal for breakfast everyday and no glasses of wine or beer during the week. If I stick this out for a few weeks it can only do me good.

Right I am off to plan for tomorrow. Bring it on!!

According to one source Bath benefits from 1 million staying visitors and 3.8 million day visitors per year. Add these visitors to a Bath population with above average UK disposable income and surely the shops and restaurants in the city centre must be immune from the troubles?

Why then did the following city centre businesses shut their doors in Bath in 2011?

Independent Retailers:

Duck Son and Pinker (first opened in 1848)
Drop Records
Gem Tree
Bath Galleries
Bath Book Exchange
Down in the Woods
Smooth Sensations
Free Spirit
Raw
Change of Direction
Funki Bambini (x2)
SW17
Hi Ho Silver
Moon and Sixpence
Walrus and Carpenter
Café Piazza

National Retailers:

Jane Norman
Habitat
Quiksilver

Several national and local retailers are likely to follow suit and close their doors to Bath this year. Closure of the above were for different reasons and I don’t know all the ins and outs of each case, However if these businesses had been booming would they not all still be trading? Times are very tough for retailers at the moment and there is no sign that things will improve in the near future. If Bath is suffering imagine the desperation of independent retailers in other towns and city’s where they don’t get the 4Million+visitors each year and/or where the disposable income of its shopping catchment is below average. What can be done? Here are some of my thoughts.

1) Government has to level the playing field for independent retailers.
2) Retailers have to review their business plans at least once a quarter to see if their business remains viable and be brutal if it does not.
3) Retailers must undertake an assessment of all of their property occupancy costs at least once a quarter.
4) Landlords have to share the pain with their tenants and take some of the hit on their property income and valuations. This requires open and transparent dialogue between occupiers and landlords.
5) Retailers and their staff have to be at the top of their game every single day with every customer.
6) Retailers have to seek out and quickly implement innovative methods of trading. At least 6 new efficiency, cost saving, profit generating ideas must be implemented each year.
7) Independent retailers have to pool resources and work together to identify their customers and sell their businesses to them.
8) Retailers must review all supplier costs before every order to ensure they remain competitive.
9) The general public has to support local businesses wherever they can and independents day is a start!

The points below are general comments compiled from experience in dealing with a variety of properties and should not be used by anyone seeking to enter a lease without obtaining specific formal professional advice from their solicitor or surveyor.

1) Not aligning their property strategy with their business strategy.

22) Not considering the “Green-ness” or energy efficiency of a property and future potential implication in terms of cost and impact on business.

23) Agreeing to pay the landlords legal costs!

Click the link below to read the article that appeared in the Business section of the Bath Chronicle on 22/04/2010.

Potential In Bath Property Market

Property Service Charge – Top 10 Tips for Tenants

By: Jamie McNeil 12th March 2010

1) Check that each service charge invoice is issued in accordance with the terms of your lease. Your lease dictates when and how much service charge you should pay.

2) When you get a service charge budget or reconciliation check it has been issued in accordance with your lease, check the services listed to ensure that all of the costs are legitimately recoverable from you.

3) When you receive a service charge reconciliation ask the landlord for full details of expenditure and request further clarification on specific items of concern.

4) Speak to other tenants to establish their opinion on service charge costs and also the quality of service provided by contractors or suppliers instructed by the landlord or managing agent. Discuss ways that the landlord may be able to reduce costs while maintaining essential services and put these views to the landlord for consideration.

5) Go over in detail landlords refurbishment plans before they start to establish how much you are being asked to contribute. Also check whether replacement works are necessary or whether less expensive repair would suffice. Is the landlord trying to recover the cost of improvements, additions or upgrades and if so are you obliged to pay your share towards these costs?

6) Check the apportionment of costs, does your lease have a fixed percentage you should be paying, if not establish from your landlord how they have arrived at your percentage share. Is your share reasonable?

7) Check the service charge rate per square foot, is this in line with other property that you occupy and similar properties?

8) Check that the services in the budget or reconciliation have, or are actually, being provided and that they are not over specified. Are costs being pushed through the service charge as you near the end of your lease?

9) Maintain an open dialogue with your landlord or managing agent and attend tenants meetings to ensure that your concerns about services are being addressed and also to ensure that you are kept informed of any variations from budget. These forums are excellent for voicing concerns regarding the quality of services and for ensuring that your landlord is regularly re-tendering contracts. It is also good practice to ensure that minutes of these meetings are recorded and kept

10) If in doubt ask a specialist surveyor or solicitor for advice.

Property Service Charge – Top 10 Tips for Tenants.pdf

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It was interesting to read that the service charge dispute at the Westfield London shopping centre is still rumbling on. In just over a year the Landlord is facing a second revolt from occupiers unhappy that service charge levels are running at just under £13 per square foot. According to reports this is down from a high of nearly £14 per square foot earlier this year. The service charge  payable has been reported as being as low as £8.50 per square foot when the scheme first opened.

It is not surprising therefore that some tenants are still unhappy about these sort of costs. In this market every tenant is trying to keep costs to a minimum and for many their very livelihood depends on them succeeding at doing just that. Disputes such as the one at Westfield London are never easily resolved, there is seldom a straightforward black and white solution to the problem and these disputes can only be resolved if both parties give ground. Is it a case of the landlord or the tenant or both digging their heels in? Or is it a case of the service charge consultants representing the tenants not doing their job properly?

Is Westfield London a case of a landlord setting artificially low initial service charge costs to lure tenants into the scheme, followed by a hike to realistic levels once the tenants are on the hook? Or is it that £13 per square foot is what it costs to run Westfield London operating at full tilt?  The cost increases may indeed be fully and legitimately recoverable from the tenants. After all a scheme with Millions of shoppers passing through the doors each year is likely to have significant repair costs and it is entirely possible that these along with utilities and other  costs have significantly exceeded original projections.

On the flip side is it the tenants that are being unreasonable? Are they happy to have all the trappings of a prestige mall but don't want to pay for it? Have they requested or made demands on the landlord that they are now reluctant to pay for?

Complaining about service charges and formally disputing them with a landlord is something not to be taken lightly. Many occupiers face being stripped of any unique special concessions granted by the landlord if they kick up too much of a fuss. Worse still the landlord tenant relationship could breakdown altogether and the whole thing end up in a costly court case benefitting no-one.  

There are landlords and managing agents in the market who are well known for pushing the boundaries of what is legitimately recoverable from tenants under their leases, whether Westfield are one of these I honestly do not know, but I would love to find out. 

westfield service charge.pdf 

Today we launched the Funny Face marketing campaign. Our A4 Flyer will be distributed to 500 Local Business's in Bristol and Swindon. This will be followed up with an email campaign to subscibers. You can view a copy of the artwork here:  "Funny Face" Flyer.pdf